Banks in Rwanda intend to publicly list debtors’ names and the money they owe, as stipulated in the contracts.
This has raised a lot of dust from respective clients and debtors. Furthermore, the fact that thousands of Rwandans, have become ‘bad debtors’, explains how bad the credit banks give to the unsuspecting clients.
The general complaint clients have is that they are given very small amounts of money and are charged high interests rates.
Can we say that banks are not important in such circumstances, where clients do not only end in bankruptcy, but also in humiliation?
Banks are very important in any financial ecosystem- they fulfil a very important role in the economy by matching borrowers and lenders. They therefore have to be available for such services.
Most businesses require loans for their normal operations. When the banking sector is not fully functional businesses are short of financial capital.
In return, loans have to be paid. If they don’t businesses run out and the bank balance sheets deteriorate due to non-performing loans.
Banks are hence, extremely important in any economy and all avenues must be exploited to protect them.
“Depositors start worrying about their deposits because the non-performing loans make some banks go belly up – your bank has lent out your money to borrowers who cannot return it. Depositors start withdrawing their cash and banks have even fewer possibilities for lending as they have to hoard cash in case there is a run on the bank. If the financial sector does not work, the real economy can go into a deadly spiral and shrink,” says Ilian Mihov, Professor of Economics at INSEAD, France.
In effect therefore, banks cannot afford to live a kind of predator- prey relationship. Where do we see people or banks in Rwanda go wrong? In the first instance, not all clients are ready for credit.
Actually, some are unknowingly too poor to take loans, which is why the loans they take further mire them in debts and poverty.
Such groups are extremely vulnerable, and need to be provided with support in the form of grants. It is therefore, only grants, which would help such groups to get on their feet, before marking off to other forms of capital.
Microfinance projects would fit best in such scenarios, by first helping households to meet their livelihoods costs, so that they can be able to save and probably expand as enterprises.
In addition, banks have to redefine customer/client relationship by providing free counselling services to clients.
Moreover, debt has been an important aspect of people’s social life in Rwanda. People take debts for various reasons.
Unfortunately, due to other expenses on necessities like health and education among others, debts tend to accumulate and ultimately put them in dangerous debt trap.
You see when one gets a loan after a long and ‘uncertain procedure’, he or she is overwhelmed by joy until the day he or she spends the last coin. Then they start pondering on how to pay back – causing days of disillusionment.
What worsens the situation is that those who incur debts do not have sufficient knowledge on how to manage the debts.
The tragedy is further compounded by the sad reality that in Rwanda, we do not have ‘consolidation firms’ that help such people in major financial crisis.
To attain a sustainable solution to this unfortunate anomaly, there is need to redefine the relationship between banks and debtors in accordance with the above arguments.